Crying Out Loud

A 20-something in a smock frantically yells and waves his arms in a "come here" motion. Another, wearing a vest, loudly answers his call with a "push forward."

A hundred December cotton futures trades have just been made on the floor of the New York Cotton Exchange, a subsidiary of the New York Board of Trade (NYBOT).

These two men, along with dozens like them, trade futures that help set cash market prices for the textile merchant in North Carolina or Hong Kong and the farmer in Texas, Alabama or Georgia.

They're in the NYBOT "cotton pit," located inside World Trade Center skyscrapers in the heart of Manhattan's financial district. Most have iron stomachs to handle the unbelievable stress. And most are young because they begin to lose their voices by the time they're in their 30s.

Before June 1 last year, traders had handled more than 1.6 million cotton futures and options contracts for 2000. Those numbers looked good to NYBOT President Mark Fichtel. He just wishes that more of the trades had been ordered by cotton growers.

"I'm surprised at the relatively modest degree to which farmers themselves use futures to enhance their income," says Fichtel.

"I understand, in many respects, the reason for it," he adds. "A lot of farmers are suspicious about New York-Chicago big city guys. The fact is, we (growers and the exchange) are all part of the same complex. Each of us has a position within the chain. At the exchange, we try to make sure that risks are minimized for each part of the chain, all the way from the grower through the production process."

Fichtel, whose Wall Street savvy comes from serving as executive vice president in the office of the chairman at the American Stock Exchange, says the negative attitude by some growers toward futures trading may have been warranted a century ago. But not in the new millennium.

NYBOT directors include representatives of various farmer marketing cooperatives who look after their grower-member interests. And a tight degree of regulation is provided by the Commodity Futures Trading Commission.

"I think a lot of those older fears of city vs. country are really unjustified," says Fichtel. "As a futures industry, not just at the NYBOT, we need to make sure that the farm community is one of the major users - and beneficiaries - of the established exchanges. They're here to provide a service for all parts of the agricultural chain."

The New York Cotton Exchange has been trading since 1870. The nation's oldest commodity futures exchange, merged with the Coffee, Sugar & Cocoa Exchange in 1998 to form the NYBOT. Citrus and a variety of currency and index products are also traded.

Cotton is traded in increments of 50,000 lbs, or about 100 bales. The futures price trading limit is 3/lb or 300 "points" up or down per day. Open interest is 20,000-25,000 contracts in a given day.

Adjacent to the cotton futures pit is the cotton options pit, which can be just as frantic. For a glimpse of a typical day of cotton trading and its "open outcry" market, check out the movie, "Trading Places," filmed on the NYBOT floor.

Producers, processors, merchants and speculators are all vital in order for the market to have liquidity.

"If you're missing one of those players, the market doesn't function quite as well in its primary purpose, to serve as a mechanism for growers or merchants to lay off risk and for speculators to take risk," says Fichtel.

"We're in the process of testing a system of hand-held devices to allow customers to electronically send their orders right into the pit via the Internet where an open outcry will take place and a trade will be executed," he says. "This will help minimize costs and the potential for error and further enhance the transparency of the marketplace."

NYBOT is also working to better identify segments that haven't used the market as much as they could.

"We want to educate growers and others on the benefits of using futures and options," says Fichtel. "With a greater degree of technology and ease of entry, we feel growers and the public will make greater use of futures and options."

Fichtel notes that, with the increase in technology, all segments of the economy are seeing different companies at work to provide services to customers similar to those that NYBOT and other commodity exchanges are introducing to their customers.

"To the degree that they're more focused on the companies that are forming them, as an investment vehicle, they may not provide the neutrality that an exchange like the board of trade does," says Fichtel.

"We really are a neutral player. We're not biased toward the grower. We're not biased toward the processor or merchants. We're not biased toward the speculator. We're here to provide a marketplace where they can all meet and accomplish their goals."